Pru Review: Traditional Life Licensing

Be H.O.T! Closed Door Policy Be Present (P+M) Active Participation One Mouth Rule

Training Norms
Phone Ethics Proper Dress Code: Business Ladies- Blazers, skirt or slacks Men- Barong or Business shirt No slippers please. Fun learning!

Pru review Objectives. . .

An appreciation for the importance and services of life insurance and thereby increase the participants commitment to the life insurance sales career Prepare for, and pass the Licensing Examination given by the Office of the Insurance Commission(IC) or Philippine Life Insurance Association(PLIA)

The Foundations of Life Insurance

Basic Terms
Insured : the person whose life is given protection Beneficiary : recipient of proceeds Face Amount : amount payable to the beneficiary Premium : amount of money regularly paid in exchange of the protection Policy : the written contract of insurance between the insured & company

Policyowner-Payor: person who pays the premium on life insurance

Life Insurance Concepts

In effect, it is: Transfer of Personal Risk Pooling & Sharing of Risk Substitutes Certainty for Uncertainty

BUSINESS USES: Keyman Insurance Collateral Contingency Fund Business Continuation

OTHER USES: Mortgage Redemption Estate Creation Estate Conservation

KEY CONCEPTS:
RISK SHARING : a group of people would pool funds together to prepare for lifes 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.

KEY CONCEPTS:
LAW OF LARGE NUMBERS: the more frequent an event is observed, the closer one gets to the events true probability. MORTALITY TABLE: the recorded rate of deaths per age group. LIFE EXPECTANCY

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

Factors in Premium Rate Determination:

* Mortality Factor - accurately predict how many people are expected to die within a given year. * Interest - investment earnings from premiums paid. * Loading - operating costs.

TYPES OF PREMIUMS
Natural Premiums - premiums which increase as one ages Level Premiums - premiums which remain the same. Single Premium - premiums paid in lump-sum. Annual Premiums - premiums paid once a year. Fractional Premiums - premiums paid more than once a year.

Risk Selection
Insurance 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 & CLASSIFYING risk is known as UNDERWRITNG. In other words, it is RISK SELECTION. UNDERWRITING guards against ANTI - SELECTION

FACTORS AFFECTING RISK:

AGE BUILD OCCUPATION PERSONAL HISTORY FAMILY HISTORY HABITS PHYSICAL CONDITION MORALS HOBBIES & AVOCATIONS GENDER RESIDENCE & TRAVEL

Age
The older the person, the higher the rate of mortality Average life expectancy: Males - age 67 Females - age 73

Build
Height and weight distribution

Habits
Refers to substance abuse of alcohol, tobacco, illegal drugs, SMOKING

Personal History
Includes any sickness, accident or medical procedure the applicant may have had

Physical Condition
Refers to the applicants current state of health (pulse rate, heart sound, BP, condition of lungs, appearance )

Occupation
Accident hazard (cargo plane pilot) Health hazard (acid cleaners, lead burners) Unhealthy Working Conditions (high pollution, loud noise places) Social Hazard ( casino dealers, entertainers, nightclub performers, bartenders)

Hobbies
Car Racing Sky Diving Scuba Diving Martial Arts Mountain Climbing Other dangerous activities done regularly

Financial Background
Refers to the size of the income of the applicant

Family History
Diabetes Heart Problem Asthma Psychosis

Morals
Refers to personal reputation or character, business ethics and sex relations

Illegal recruiters Immoral Activities Homosexuality

Gun Runner Politicians Armed Officials

Residence and Travel

Refers to the environmental hazards in the applicants place of dwelling extreme climate impure drinking water peace and order sanitation

CLASSIFICATION OF RISK:
PREFERRED RISK - lower than usual mortality STANDARD RISK - within expected risk or normal risk SUBSTANDARD RISK - higher than usual mortality UNACCEPTABLE - uninsurable or declined

Sources of Information
SOURCES OF UNDERWRITING INFORMATION: Application Form Agents Confidential Report Medical Report Inspection Report Attending Physicians Report Medical Information / Impairment Bureau Financial Statements

Full Medical Exam Medical history as recorded by the medical examiner Physical examination of the insured (height, weight, blood pressure, pulse, heart and lung sounds)

Micro urinalysis ECG Blood Tests requires 8-10 hrs. of fasting tests for liver and kidney functions, cardiovascular conditions, blood diseases and disorders Treadmill detect coronary heart disease detect disease or abnormality of the heart detect albumin, sugar, WBC, RBC Chest X-ray detect any lung impairment, measure heart size

Attending Physicians Statement provides first-hand information on insureds medical condition

Inspection Report lifestyle, activities, occupation, economic standing

Supplementary Questionnaires medical : respiratory , diabetes non-medical : aviation, scuba-diving

Medical Impairment Bureau (MIB)

Application form
Identifies the insured Specifies the coverage requested, plan and purpose Names the beneficiaries Provides basic insurability information Agents Report Signature Non-medical declaration - health history of insured as recorded by the agent

Risk Selection
LIEN - an amendment to the insurance contract whereby the companys 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. Examples: Pregnancy Lien Childs Lien Aviation Lien Assassination Lien

Life Insurance Policies

POLICY CLASSIFICATIONS
Accdg. to coverage: Individual Joint Group Accdg. to participation in divisible surplus: Participating Non-participating Accdg. to line of business: Ordinary Industrial Group Accdg. to nature: Temporary Permanent

Types of Plan
TERM - A contract that pays the face amount only in the event of death within a stated number of years. NO SAVINGS !

Maturity Period
Protection Premium Paying Period Benefit Period (upon death)

Advantages of Term
AFFORDABILITY OPTION FOR RENEWAL OPTION FOR CONVERSION

Important Features
CONVERTIBILITY option to change to whole life or endowment before the contract expires WITHOUT undergoing a medical exam RENEWABILITY option to extend their contracts for a specific period WITHOUT undergoing a medical exam

Types of Plan
WHOLE LIFE - pays the face amount when death occurs during the entire life span (age 100) of the insured. OFFERS PROTECTION AND SAVINGS ! Age 100 Protection Premium Paying Period Benefit Period

ENDOWMENT - written for a definite number of years and guarantees to pay the face amount to the insured if he lives, or to the beneficiary if the insured dies before reaching the maturity date. FOCUS IS ON SAVINGS ! Maturity Date Protection Premium Paying Period Benefit Period

Life Insurance Policies

Riders
..Provides auxiliary benefits that basic plans do not offer. For the extra benefit, a small additional premium is added. 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.

PAYORS 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 whichever comes first. Attached to juvenile policies. ACCIDENTAL DEATH BENEFIT Provides additional cash benefits if the insured dies due to an accident. Also known as double indemnity.

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

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.

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: medical expense coverage; or, disability income

Life Insurance Contract

Characteristics of a life insurance contract: Unilateral Contract- one legally enforceable promise. Contract of adhesion - insured would only accept or reject the contract. Conditional Contract - payment of claims depend upon certain acts. (e.g. payment of premiums) Valued Contract - the insurer agrees to pay a certain amount of money (face amount), regardless of the actual amount of the loss that was incurred

Characteristics of a life insurance contract: Aleatory Contract - no exchange of approximately equivalent values. Executory - promise of a benefit upon a future occurrence

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

INSURABLE INTEREST: Relationships where insurable interest exists:

Spouses, parent & child, siblings, Pecuniary (Creditor-Debtor) Key person insurance, Business partners.

Representation Vs. Warranties Representation- statements need to be substantially true Warranty- statements need to be literally true

Offer & Acceptance There must be an offer & acceptance to make the contract valid.

Policy Provisions
General Provisions are required policy provisions which spell out and protect the rights of policyholders and beneficiaries of life insurance General Provisions also impose certain obligations on the insurer to advance the interest of the policyholder Entire Contract Clause Grace Period Incontestable Clause Suicide Clause Misstatement of Age Policy Loan Reinstatement Provision Dividend Option Non-Forfeiture Option

 Beneficiary Provision Settlement Option

Entire Contract Clause

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

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

Incontestable Clause
A provision in life insurance policies that limits the companys right to question the validity of the contract (2 years from the issuance or reinstatement of the policy) Grounds for contesting a policy A. FRAUD B. CONCEALMENT C. MATERIAL MISREPRESENTATION

Suicide Clause
A provision that governs the payment of policy proceeds if the insured dies as a result of suicide (sum assured is payable if insured commits suicide after 2 years from the issuance of the policy or last reinstatement )

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

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

Dividend Options
Options given to a policy owner on how to use his/her dividends CASH REDUCE PREMIUM PAYMENT ACCUMULATE TO EARN INTEREST BUY PAID-UP ADDITIONS BUY ONE-YEAR TERM

Non Forfeiture Options

Options given to a policyowner in case of forfeiture of premium payments Available only at the end of 3 years 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. PAID-UP INSURANCE (REDUCED AMOUNT) - cash value is used to buy fully paid-up insurance with a smaller face amount than the original policy AUTOMATIC PREMIUM LOAN - payment of an overdue renewal premium by making a loan against the policys cash value

Reinstatement
The process by which an insurer puts back into force a policy that has been terminated for non-payment of premiums or has been continued as extended term or reduced paid-up insurance Fill-up an application for reinstatement Payment of all back premiums plus interest Presentation of satisfactory evidence of insurability Within 3 - 5 years from the date of lapse

Facility of Payment Clause

A provision that permits the insurer to pay all or part of the policy proceeds to a blood relative of the insured or to anyone who has a valid claim to the proceeds.

Successor- Payee Clause

A provision that allows the person called a contingent payee/successor payee, to receive any proceeds to a life insurance policy still payable at the time of a payees death

Common Disaster Clause

A provision which states that the beneficiary must survive the insured by a specified period in order to receive the policy proceeds

Transfer of Ownership
ASSIGNMENT
an agreement under which one party transfers some or all his ownership rights in a particular property to another party.

Two Types of Assignment

Absolute Assignment Collateral Assignment

Two Types of Assignment

Absolute Assignment - an assignment of a life insurance policy under which the policyholder transfers all policyowner rights to the assignee Ex. Absolute assignment to a key person Collateral Assignment - a temporary assignment of the monetary value of a life insurance as a security for a loan Ex. Mortgage Redemption Insurance Endorsement - a method by which the owner of the life insurance policy may transfer all ownership rights in the policy by notifying the insurer in writing of the change Endorsement the provision states that the insurer is not responsible for any payments it made to the owner of record before it received written notice of the transfer

Settlement Options
In Lieu of Lump Sum payment, these are the choices given as to how the proceeds of insurance will be paid out INTEREST OPTION - the insurer invests the proceeds of a life insurance policy and pays interest on these proceeds to the payee FIXED-PERIOD OPTION - the insurer pays the policy proceeds and interest in a series of equal installments for a specified period of time FIXED AMOUNT OPTION - the insurer pays the policy proceeds and interest in a series of equal installments for as long as the proceeds last LIFE INCOME OPTION - the insurer pays the policy proceeds and interest in a series of periodic installments over the payees lifetime

Unethical Practices
M R. T K O MISREPRESENTATION REBATING TWISTING KNOCKING OVERLOADING

MISREPRESENTATION

REBATING
The act of accepting a PREMIUM smaller than the one stipulated in the policy or offering anything of value as an inducement for the prospect to purchase the contract.

TWISTING
The act of persuading a person to lapse or surrender a policy in order to purchase a new one.

KNOCKING
The act of criticizing other agents and other life insurance companies

OVERLOADING
The act of persuading a person to buy an amount of life insurance which is beyond the buyers means and which then forces the buyer to lapse his policy in the future.