Insurance Concepts Review (Traditional Life) PDF

Insurance Concepts Review TRADITIONAL LIFE & VARIABLE UNIVERSAL LIFE We are your Learning partners 1  Course Content Part 1: TRADITIONAL LIFE Part 2: VARIABLE UNIT-LINKED a. Insurance Commission...

Insurance Concepts Review TRADITIONAL LIFE & VARIABLE UNIVERSAL LIFE We are your Learning partners 1  Course Content Part 1: TRADITIONAL LIFE Part 2: VARIABLE UNIT-LINKED a. Insurance Commission a. Concept of Variable Universal Life b. Insurance Commission Exam (IC)/Insurance b. Financial Planning Process Institute for Asia and the Pacific (IIAP) c. Types of Investment Assets Examination Process d. Types of Funds c. Concepts of Life Insurance e. Types of Variable Contract d. Premium, Basic Plans and Riders f. Definition of Terms e. Legal Aspects of Life Insurance g. How does VUL work? f. Policy Provisions h. Basic Computation of Units g. Annuities h. Ethics We are your Learning partners 2  Insurance Concepts Review PART 1: TRADITIONAL LIFE 3  Insurance Commission Regulatory government agency Executes all laws pertaining to insurance Regulates insurance companies We are your Learning partners 4  Insurance Commission Functions of the Insurance Commission Issues licenses to insurance companies Reviews policy contracts and premium rates Examines the financial condition of insurance companies to ensure solvency Renders assistance to the public on matters pertaining to insurance We are your Learning partners 5  Insurance Commission Location of the Insurance Commission 1071 United Nations Avenue cor. Romualdez St., Ermita, Manila We are your Learning partners 6  Insurance Commission Insurance Code of the Philippines Rendered the provisions of Presidential Decree No. 612 Promulgated in 1978 Also known as Presidential Decree No. 1460 Special law to govern insurance We are your Learning partners 7  Insurance Commission Built on Trust Between the company, the advisor and the client Importance of upholding professionalism and proper ethics We are your Learning partners 8  IC and IIAP Examination Process INSURANCE CONCEPTS REVIEW 9  IC and IIAP Examination Process ✓ IC – Offsite Special Exam (BGC) ✓ IC Online Agents’ Computerized Examinations (ONLINE ACE) System ✓ IIAP Online Exam We are your Learning partners 10 11  IC-Offsite Special Exam (BGC) Procedure and Requirements 1. Survey Alchemer for IC Special Exam schedule and registration will be emailed by Licensing Team to all FMs and SSAs 2. Kindly ensure completion of requirements: o Insurance Concepts Certificates o Proof of Exam Payment ✓ Traditional: Ps. 1,010 ✓ VUL: Ps. 1,010 ✓ Both: Ps. 2,020 3. This is on a First-come-First-served basis with 330 slots per day. 4. Please note that only FULLY VACCINATED examinees are allowed take the exams. Partially vaccinated examinees may still register as long as they are scheduled to have the 2nd dose before their desired exam date Please advise to only register on one date, otherwise you must pay exam fees for all registrations made We are your Learning partners 12 13  IC ONLINE ACE System Requirements 1. Completion of Insurance Concepts Training – Life and Variable 2. Payment of Exam Fees o Life: Ps. 1,010 o Variable: Ps. 1,010 o Both: Ps. 2,020 3. Transfer or deposit payment to o BPI Account Name: Sun Life of Canada (Phils.), Inc. o Account Number: 0993015679 Proof of payment must be submitted. This can be a screenshot of the online bank transfer/ payment confirmation or validated deposit slip. No need to request for original receipt We are your Learning partners 14  IC ONLINE ACE System System Requirements for the Examinee PARAMETER MINIMUM REQUIREMENTS Web Browser Latest version of Mozilla Firefox & Chrome Operating System Windows 7, MacOS 10.12 “Sierra”, Linux Processor Dual-core RAM 2GB Network bandwidth 1 Mbps Cisco Webex Meetings. Cisco Webex Meetings is available for Windows and MacOS through this link: htts://www.webex.com/downloads.html We are your Learning partners 15  IC ONLINE ACE System Procedure 1. Recruiting Manager to email COMPLETE requirements to respective Licensing Associate: o Completely filled-out IC-ACE Excel Information sheet (Please check with SSA for copy) o Proof of Payment o 2x2 ID Picture in business attire, with white background and name plate o Insurance Concepts (Life and Variable) Certificate of Completion 2. Licensing Associate will assign the online exam schedule based on the available slots in the IC-ACE system. Licensing Associate will advise the requesting recruiting manager, through email, the following information: exam schedule, username, and password of their examinee, two (2) working days after the receipt of the complete requirements. We are your Learning partners 16  IC ONLINE ACE System Procedure 3. Licensing Associate will remit licensing exam fees to IC three (3) days before your exam date. Refunding of exams fees is not allowed once paid to IC. “No Show” means forfeiture of payment. 4. Insurance Commission will directly email the examinee the IC- registration link. The examinee must register not later than one (1) day before the scheduled examination date. 5. Once the registration is approved, IC will send another email to the examinee with the Joint Meeting/ Meeting Link, which will be used to enter the (online) examination room. We are your Learning partners 17  IC ONLINE ACE System On the Exam Day 1. Examinees are advised to join the meeting 30 minutes before their scheduled batch. (Cisco Webex). 2. A pop-up dialog will appear once the examinee has clicked the link for the meeting. 3. The examinee must change the Display Name and Email Address with this format : Insurance Company – Type of Exam- Examinee’s Name 4. Access the Online IC-ACE through https://web.insurance.gov.ph/ace-monitoring/ We are your Learning partners 18  IC ONLINE ACE System On the Exam Day 5. The examinee does not require using any paper, pen, pencil, or calculator. 6. The exams will be proctored through the camera and microphone of the laptop/desktop device. 7. The proctor will ask examinee to present to the camera a valid government ID will full name, year of birth, country, issue date, and expiration date. 8. Examinee may send a message to the proctor using the chat box for assistance. 9. Turn-around-time for the release of the results may vary. We are your Learning partners 19  IC ONLINE ACE System Important Reminders 1. The exam shall be taken in well-lit, quiet, and private room (alone). The following should be removed from the workspace (other laptops/desktops, mobile phones, smart devices, calculators, papers, reviewers/books, any object that may contain writing). 2. All programs, applications and websites must be closed except for WebEx application, and web browser used to access the Online ACE. 3. Once the exams start, do not refresh the browser, or navigate away from the exam as this may result in the loss of progress and will not be recoverable, even by the proctor. 4. Individuals who are not taking the examination are prohibited from entering the room. 5. The face of the examinee should be fully visible the entire duration of the examination. 6. Hats, sunglasses, headphones are prohibited during the exam. 7. If hearing aid is required, examinee must inform Licensing Associate 48 hours prior to the exam starting time. We are your Learning partners 20  IC ONLINE ACE System Important Reminders 8. Bathroom breaks are not permitted. 9. In cases where the proctor suspects that cheating or any other act of impropriety may be occurring, the proctor may request the examinee to share screen and will provide instructions for doing this. 10. The online examination room is recorded upon entry of the examinee until the submission of the last examinee of their exam. 11. If an act of impropriety has been deemed to have taken place, IC reserves the right to apply the appropriate disciplinary policy. We are your Learning partners 21 22  IIAP ONLINE EXAM Requirements 1. Completion of IIAP Online Training. Recruiting Manager to enroll the Advisor Candidate by registering thru https://survey.alchemer.com/s3/5206975/Online- Courses-Enrollment-Form. 2. After completion of training, Recruiting manager should make a separate e- mail request to [email protected] for: o IIAP Application Form 0930, and o IIAP Exam Undertaking 3. Payment of Online Exam Fee of PhP 1,200.00 o BPI Account Name: Sun Life of Canada (Phils.), Inc. o Account Number: 0993015679 No need to request for Original Receipt. Instead, proof of payment such as screenshot of confirmed transfer details or copy of validated deposit slip will be required for submission. We are your Learning partners 23  IIAP ONLINE EXAM Procedure 1. Advisor Candidate to complete the IIAP Online Training.. 2. Advisor Candidate to accomplish/fill out, scan, and email the following to the recruiting manager. Each of the examinees must put their requirements in one/continuous PDF to ensure that the documents are readable, accessible and in uniform format. (1 pdf file= 1 examinee). o IIAP Application Form 0930 (PDF Format) o IIAP Exam Undertaking (PDF Format) o 1x1 recent ID photo (JPEG Format) (yellow color background) o Scanned copy of any government-issued ID (PDF Format) o Proof of Exam Payment PDF format (PDF Format) o IIAP online Examinees Template We are your Learning partners 24  IIAP ONLINE EXAM Procedure 3. Recruiting manager to check completion/correctness of requirements and email the same to Licensing Associate* / Recruitment Specialist concerned: Email Subject: IIAP ONLINE EXAM REQUIREMENTS XXXX NBO 4. Licensing Associate to email IIAP the list of all online examinees two (2) workings days after receipt of all the requirements. 5. Licensing to prepare and remit check payment to IIAP within two (2) working days from date the list of online examinees was submitted to IIAP. 6. IIAP will send directly to the examinee’s email address the exam verification code within 24hours upon receipt of payment from Sun Life. Please ensure correct e-mail address of examinees in all forms. 7. Verification code will only be valid for seven (7) days from the date of receipt of email. Once accessed, examinee must finish the exam within one (1) hour. *Licensing Associate may vary from time-to-time We are your Learning partners 25  IIAP ONLINE EXAM Procedure 8. IIAP to release the exam results to Sun Life five (5) working days after the exam. Licensing will email the recruiting manager of the results. We are your Learning partners 26  Concept of Life Insurance TRADITIONAL LIFE 27  Concept of Life Insurance Man at Work INCOME EXPENSES OLD AGE DISABILITY DEATH SICKNESS We are your Learning partners 28  Concept of Life Insurance Man at Work INCOME EXPENSES LIFE INSURANCE We are your Learning partners 29  Concept of Life Insurance THREATS SERVICE BENEFIT Family Death Protection Benefit DEATH Retirement Maturity Income Benefit OLD AGE Guaranteed Cash Savings Values SICKNESS & DISABILITY We are your Learning partners 30  Concept of Life Insurance Human Economic Value Human life has an economic value The capitalized monetary worth of the earning capacity of an individual devoted to the support of his family during his working lifetime We are your Learning partners 31  Concept of Life Insurance Life Insurance A RISK–SHARING BUSINESS We are your Learning partners 32  Concept of Life Insurance Risk Sharing A group of people places a fund together in preparation for an uncertain event. Everyone is prepared to accept a small loss to compensate the unfortunate from the effect of a larger loss. We are your Learning partners 33  Concept of Life Insurance What is Risk? Chance of loss. Exists when there is uncertainty about the future. We are your Learning partners 34  Concept of Life Insurance Types of Risk 1. SPECULATIVE RISK – involves three possible outcomes: loss, gain, or no change. 2. PURE RISK – is a risk that involves no possibility of gain; there is either a loss or no loss. May be insured. We are your Learning partners 35  Concept of Life Insurance Law of Probability A likelihood that a given event will occur in the future. This is used in determining the number of people dying & living at a particular age within a given period. We are your Learning partners 36  Concept of Life Insurance Law of Large Numbers The more frequent a particular event is observed, the more likely that the observed results will approximate the true probability of the event happening. We are your Learning partners 37  Concept of Life Insurance Risk Selection/Underwriter A systematic evaluation of an insurance applicant for the purpose of determining the classification of risk for possible coverage. We are your Learning partners 38  Concept of Life Insurance Anti-Selection The high pre-disposition for those with impairments to purchase life insurance Can be prevented through proper Risk Selection/ Underwriting. We are your Learning partners 39  Concept of Life Insurance Factors in Risk Selection PHYSICAL OCCUPATION FINANCIAL MORAL HAZARD AVOCATION RESIDENCE/TRAVEL We are your Learning partners 40  Concept of Life Insurance Sources of Information Application Form Medical Examination Report Agent’s Confidential Report Medical Information Database (MID) We are your Learning partners 41  Concept of Life Insurance RISK CLASSIFICATION ACCEPT DECLINE STANDARD SUBSTANDARD We are your Learning partners 42  Concept of Life Insurance Basic Insurance Terms Life Insurance Policy Face Amount Insurer Premium Insured Death Benefit Policyowner/ Applicant Maturity Benefit Beneficiary Cash Values Dividends We are your Learning partners 43  Concept of Life Insurance Basic Insurance Terms Life Insurance Policy as defined by the Insurance Code P.D. 1460 A contract whereby a PARTY for a CONSIDERATION agrees to pay ANOTHER a SUM OF MONEY in the event of his DEATH FROM ANY CAUSE NOT EXCEPTED IN THE CONTRACT, or upon surviving a SPECIFIED PERIOD, or otherwise on the CONTINUANCE or cessation of life. We are your Learning partners 44  Concept of Life Insurance Life Insurance Policy as defined by the Insurance Code P.D. 1460 Party – Insured & Insurer Consideration – premium payment/policy payment Another – Beneficiary Sum of Money – proceeds/face amount/face value Death from any cause not excepted in the contract – excluded risks Specified period / Continuance – Maturity period We are your Learning partners 45  Concept of Life Insurance Insurer o The insurance company Insured o The person whose life is covered under the insurance policy. Policyowner/Applicant o The person who is buying or applying for life insurance. We are your Learning partners 46  Concept of Life Insurance Beneficiary o The person who is designated to receive the insurance proceeds upon death of the insured. Face Amount o The amount stated in the policy as payable under a life insurance policy if the insured dies while the policy is in force. We are your Learning partners 47  Concept of Life Insurance Premium o A sum of money given by the insured as a consideration for the insured’s promise to indemnify or replace the loss. Death Benefit o The amount payable upon death of insured. The sum assured the beneficiary (ies) would receive in case the insured dies during the protection period. We are your Learning partners 48  Concept of Life Insurance Maturity Benefit o The amount payable if the insured outlives the protection period. Cash Values o The guaranteed amount received in case the plan is terminated prior to the death of the insured or maturity of the policy. o Legal reserves or the savings element of the policy. We are your Learning partners 49  Concept of Life Insurance Dividends o Return of excess premium paid annually to owner of insurance policy based on insurer’s performance and experience over a given year. We are your Learning partners 50  Concept of Life Insurance Cash Needs: CReFaLEER C Clean Up Fund Fund to pay hospital bills, funeral expenses, and taxes Re Readjustment Fund Fund used to cushion immediate lifestyle adjustment that family must make if the insured dies Fa Family Dependency Fund Fund to provide for the family’s needs while the children still dependent L Life Income for the Widow Lifetime fund for the widow E Educational Fund Fund that will ensure the education of children E Emergency Fund Fund that is designed to provide financial back up for unexpected R Retirement Fund 51Fund that gives security and peace of mind who have outlived their earning years  Concept of Life Insurance Life Insurance gives certainty to uncertainty Death is a certainty When, is an uncertainty To live is one’s right How long isn’t one’s choice Life insurance cannot prevent your death It prevents your plans from dying with you We are your Learning partners 52  Premiums, Basic Plans & Riders TRADITIONAL LIFE 53  Premiums, Basic Plans & Riders Concept of Premium An ACTUARY is the /a company officer that determines the premium rates with respect to the principal elements of the life insurance. We are your Learning partners 54  Premiums, Basic Plans & Riders Factors that affect the premium: 1. Mortality 2. Interest 3. Expense We are your Learning partners 55  Premiums, Basic Plans & Riders Mortality + Interest = NET PREMIUM Expense + (Safety Margin Requirement) = LOADING Net Premium + Loading = GROSS PREMIUM We are your Learning partners 56  Premiums, Basic Plans & Riders Types of Premium Natural Premium o premiums that increase each year as the age of the insured increases. Level Premium o premiums that remain the same from year to year throughout the premium paying period. We are your Learning partners 57  Premiums, Basic Plans & Riders CLASSIFICATION OF BASIC PLANS According to According to According to NATURE PARTICIPATION COVERAGE We are your Learning partners 58  Premiums, Basic Plans & Riders CLASSIFICATION OF BASIC PLANS According to According to According to NATURE PARTICIPATION COVERAGE We are your Learning partners 59  Premiums, Basic Plans & Riders ACCORDING TO NATURE TEMPORARY / TERM PERMANENT LEVEL TERM DECREASING ORDINARY / ENDOWMENT TERM WHOLE LIFE Regular Endowment Limited Pay Life Pure Endowment Anticipated Endowment We are your Learning partners 60  Premiums, Basic Plans & Riders Temporary or Term Plan Life Insurance that remains in force for a specified period or term. Term pays the face amount only in the event of death. There are no cash values, no profit sharing, and is the cheapest in terms of initial premium outlay. Renewable & Convertible. We are your Learning partners 61  Premiums, Basic Plans & Riders Renewable Example: Yearly Renewable Term Protection Period Renewable for another year Age 30 Age 31 Age 32 We are your Learning partners 62  Premiums, Basic Plans & Riders Convertible Example: 5 Year Convertible Term Protection Period Age 30 Age 33 Age 35 May be converted in whole or in part We are your Learning partners 63  Premiums, Basic Plans & Riders Types of Term Plans 1. Level Term o the death benefit remains constant over the term of coverage. 2. Decreasing Term o the death benefit starts at the set face amount and then decreases over the term of the coverage. We are your Learning partners 64  Premiums, Basic Plans & Riders Types of Term Plans 1. Level Term Example: 5 Year Level Term Face Amount Php 3M Php 3M 5 Years We are your Learning partners 65  Premiums, Basic Plans & Riders Types of Term Plans 2. Decreasing Term Example: 5 Year Decreasing Term Face Amount Php 5M Php 2.5M 5 Years Death Benefit We are your Learning partners 66  Premiums, Basic Plans & Riders Whole Life Plan Life Insurance that remains in force during the insured’s lifetime. The face amount is paid whenever death occurs up to the age of 100 of the insured. There are cash values as well as profit sharing and dividends. The initial premium outlay is higher than term insurance but is lower than endowment. We are your Learning partners 67  Premiums, Basic Plans & Riders Whole Life Plan Protection Period & Premium Paying Period Age 30 Age 65 Age 75 (RIP) Age 100 LB = CV+AD DB = FA+AD MB = FA+AD We are your Learning partners 68  Premiums, Basic Plans & Riders Limited Pay Life Plan Provides lifetime protection with premiums payable for limited term of years. Life Insurance that remains in force during the insured’s lifetime. The face amount is paid whenever death occurs up to the age of 100 of the insured. There are cash values as well as profit sharing and dividends. We are your Learning partners 69  Premiums, Basic Plans & Riders Limited Pay Life Plan Example: 10 Year Limited Pay Life Plan Protection Period Age 30 Age 40 Age 65 Age 75 (RIP) Age 100 LB = CV+AD DB = FA+AD MB = FA+AD Premium Paying Period We are your Learning partners 70  Premiums, Basic Plans & Riders Endowment Plan Pays the face amount whether the life insured lives to the end of a specified period or dies during that period. It has cash values, profit sharing or dividends. Initial premium outlay is the highest compared to term and permanent plans. Allows for faster accumulation of funds, making it ideal for saving for future needs. We are your Learning partners 71  Premiums, Basic Plans & Riders Endowment Plan Example: 20 Year Endowment Plan Protection & Premium Paying Period Age 40 Age 50 (RIP) Age 60 DB = FA+AD MB = FA+AD We are your Learning partners 72  Premiums, Basic Plans & Riders Types of Endowment Plan 1. Regular Endowment a. Age-based b. Term-based 2. Pure Endowment 3. Anticipated Endowment We are your Learning partners 73  Premiums, Basic Plans & Riders Types of Endowment Plan 1. Regular Endowment a. Age-based - provides maturity benefit at a specified age (Ex. Endowment at 65) b. Term-based - provides maturity benefit at the end of a specified period (Ex. 20 Year Endowment) We are your Learning partners 74  Premiums, Basic Plans & Riders Types of Endowment Plan 2. Pure Endowment Promises to pay the face amount only if the insured survives up to the end of the endowment period. Nothing will be paid if death occurs before the end of the endowment period. We are your Learning partners 75  Premiums, Basic Plans & Riders Types of Endowment Plan 3. Anticipated Endowment Policy owner does not have to wait for the maturity date of before a portion of the face amount is given. We are your Learning partners 76  Premiums, Basic Plans & Riders CLASSIFICATION OF BASIC PLANS According to According to According to NATURE PARTICIPATION COVERAGE We are your Learning partners 77  Premiums, Basic Plans & Riders ACCORDING TO PARTICIPATION NON PARTICIPATING PARTICIPATING We are your Learning partners 78  Premiums, Basic Plans & Riders Participating vs. Non-participating Non-Participating o is one in which the policy owner does not share in the insurer’s dividends. Participating o is one under which the policy owner shares in the insurance company’s dividends. We are your Learning partners 79  Premiums, Basic Plans & Riders CLASSIFICATION OF BASIC PLANS According to According to According to NATURE PARTICIPATION COVERAGE We are your Learning partners 80  Premiums, Basic Plans & Riders ACCORDING TO COVERAGE INDIVIDUAL LIFE JOINT LIFE GROUP LIFE Joint Life Contributory Joint and Last Non- Survivor Contributory We are your Learning partners 81  Premiums, Basic Plans & Riders Individual Life Provide protection to one person only. There is only one Insured in this type of plan. May be payable annually, semi-annually or quarterly basis. Individual policies may also be paid on a monthly basis in the form of Salary Savings insurance. We are your Learning partners 82  Premiums, Basic Plans & Riders Joint Life Joint Life plans provide protection to two or more persons, allowing a single plan to have 2 or more Insureds. We are your Learning partners 83  Premiums, Basic Plans & Riders Types of Joint Life Joint Life o Death benefit payable at first death, after which the policy terminates. Joint and Last Survivor o Insurance coverage is extended until the last person being covered in the policy dies. We are your Learning partners 84  Premiums, Basic Plans & Riders Group Life Provides protection to a group of people A single master policy under which individuals in a natural group (such as employees of a business firm) are insured We are your Learning partners 85  Premiums, Basic Plans & Riders Types of Group Life Non-contributory o employer pays for the premium; 100% of the employees are included in the policy Contributory o employer and the employees share in the premium payment; at least 75% should be enrolled We are your Learning partners 86  Premiums, Basic Plans & Riders Riders Are supplementary contracts that when attached to the basic policy, will provide additional benefits at minimal cost. It is referred to as a rider because it needs a basic policy to “ride on” to be effective. We are your Learning partners 87  Premiums, Basic Plans & Riders Types of Riders Accidental Death Benefit Waiver of Premium Due to Disability Payor’s Benefit Guaranteed Insurability Option Term Insurance Rider Family Income Rider We are your Learning partners 88  Premiums, Basic Plans & Riders Accidental Death Benefit (ADB) Provides an additional amount equal to the coverage in the event of accidental death of the insured. Limited within the period of 90 days from the date of the accident. We are your Learning partners 89  Premiums, Basic Plans & Riders Waiver of Premium due to Disability (WPD) Provides for a waiver of premium if the insured suffers from a total and permanent disability. We are your Learning partners 90  Premiums, Basic Plans & Riders Payor’s Benefit Provides waiver of premium during the rider term when the payor dies or becomes totally and permanently disabled. Waives premiums until the time the insured child reaches the age where he can earn and pay for the premiums of the policy. We are your Learning partners 91  Premiums, Basic Plans & Riders Guaranteed Insurability Option (GIO) Provides an opportunity for people to buy specific amounts of additional life insurance coverage at stated future intervals without the need to show evidence of insurability. This means that the insured will automatically pay the standard rate since there would be minimal underwriting requirements. We are your Learning partners 92  Premiums, Basic Plans & Riders Term Insurance Rider Provides an additional amount of coverage for a minimal cost. The rider has its own face amount separate from the coverage of the basic policy, but cost of coverage is lesser since it is a term coverage. We are your Learning partners 93  Premiums, Basic Plans & Riders Family Income Rider A form of decreasing term rider that provides the family of the insured monthly income from the insured’s date of death until the duration of the rider. We are your Learning partners 94  Legal Aspects of Life Insurance TRADITIONAL LIFE 95  Legal Aspects of Life Insurance Types of Contracts Valued Contracts and Contracts of Indemnity Informal and Formal Contracts Unilateral and Bilateral Contracts Aleatory and Commutative Contracts Contracts of Adhesion and Bargaining Contracts We are your Learning partners 96  Legal Aspects of Life Insurance Valued Contract vs. Contract of Indemnity LIFE INSURANCE NOT LIFE INSURANCE ✓VALUED CONTRACT CONTRACT OF INDEMNITY Specifies the amount of The amount of policy benefit benefit that will be payable payable for a covered loss is when a covered loss occurs, based on the actual amount regardless of the actual of financial loss, as amount that was incurred. determined at the time of loss. We are your Learning partners 97  Legal Aspects of Life Insurance Informal Contract vs. Formal Contract LIFE INSURANCE NOT LIFE INSURANCE ✓INFORMAL CONTRACT FORMALCONTRACT o Parties met requirement o Parties met certain concerning the substance formalities concerning the of the agreement. form of the agreement. o It may be expressed in a o Contract should be written verbal or written fashion. and should have a seal to Life insurance contracts be enforceable. are typically written. We are your Learning partners 98  Legal Aspects of Life Insurance Unilateral Contract vs. Bilateral Contract LIFE INSURANCE NOT LIFE INSURANCE ✓UNILATERAL CONTRACT BILATERAL CONTRACT Only one of the parties Both parties to the contract (insurer) to the contract has have legally enforceable legally enforceable promises. promises. We are your Learning partners 99  Legal Aspects of Life Insurance Aleatory Contract vs. Commutative Contract LIFE INSURANCE NOT LIFE INSURANCE ✓ALEATORY CONTRACT COMMUTATIVE CONTRACT o One party provides o an agreement which the something of value to parties specify in advance another party in exchange the values that they will for a conditional promise exchange o One party may receive o parties exchange items or something of greater services of relatively equal value than that party value. gave. We are your Learning partners 100  Legal Aspects of Life Insurance Contract of Adhesion vs. Bargaining Contract LIFE INSURANCE NOT LIFE INSURANCE ✓CONTRACT OF ADHESION BARGAINING CONTRACT One party prepares the Both parties, as equals, set contract and the other may the terms and conditions of accept or reject as a whole, the contract. without any bargaining between the parties to the agreement. We are your Learning partners 101  Legal Aspects of Life Insurance Offer and Acceptance For a contract to be valid there must be: An OFFER and ACCEPTANCE We are your Learning partners 102  Legal Aspects of Life Insurance Conditional Receipt In most cases when an advisor receives the premium payment from the client, he/she issues a conditional receipt to acknowledge payment. We are your Learning partners 103  Legal Aspects of Life Insurance Legal Capacity Policyowner o Must be of legal age o Must have sound mind and body Insurance Company o Registration and Regulation o Capitalization We are your Learning partners 104  Legal Aspects of Life Insurance Insurable Interest o Insurable Interest exists when a policyowner has reasonable chance of suffering financial loss if the person who is insured dies. o It should also exist between the insured and the named beneficiaries. o Its existence during inception of the policy is required. We are your Learning partners 105  Legal Aspects of Life Insurance Every person has an insurable interest in the life and health: 1. Of himself, of his spouse and of his children; 2. Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; 3. Of any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance; and 4. Of any person upon whose life any estate or interest vested in him depends. We are your Learning partners 106  Policy Provisions TRADITIONAL LIFE 107  Policy Provisions While the insured lives and the policy is active.. o Entire Contract Clause o Assignment o Ownership o Dividend Options o Premium Payment o Grace Period o Policy Loan We are your Learning partners 108  Policy Provisions Entire Contract Clause o Made up of the policy and the attached application form o Includes other reports, amendments material to the policy o Cannot be affected by later changes We are your Learning partners 109  Policy Provisions Ownership o Right to assign, transfer or have policies amended. o Change beneficiaries and exercise privileges in the contract. o Right to cash values and dividends. We are your Learning partners 110  Policy Provisions Premium Payment o Can be done annually, semi-annually, quarterly and monthly. o Payment of the first premium makes the contract binding. o Subsequent payments are entirely dependent on the policyowner. We are your Learning partners 111  Policy Provisions Grace Period o Protects the policy from lapsing o Generally, 30 days from due date o Right to cash values and dividends We are your Learning partners 112  Policy Provisions Policy Loan o Right to loan against the cash value o Loan within prescribed limits; not exceed the cash value o Treated as a loan, has interest We are your Learning partners 113  Policy Provisions Incontestability o 2 years after the policy has been in force, the company cannot contest its validity. o If the company has no objection during the period, there can be no question about the payment of proceeds. We are your Learning partners 114  Policy Provisions Dividends o For participating policyholders o Dependent on mortality experience, investment earnings and expenses o NOT GUARANTEED We are your Learning partners 115  Policy Provisions Dividend Options 1. Cash 2. Reduced Premium 3. Interest 4. Paid-Up Addition 5. Yearly Renewable Term We are your Learning partners 116  Policy Provisions When the insured dies… o Misstatement of age o Incontestability o Suicide o Beneficiary o Settlement We are your Learning partners 117  Policy Provisions Misstatement of Age o Misrepresentation on the matter of age o Age is increased or decreased o Amount of proceeds will be adjusted upon death We are your Learning partners 118  Policy Provisions Assignment o Right of the policyowner to transfer or assign the policy o Two types: Absolute and Collateral o Must notify the company of any assignment o Company will accept without question We are your Learning partners 119  Policy Provisions Suicide o To discourage financially desperate people from purchasing policies with suicide in mind. o If committed within 2 years of the policy, the company will refund the premiums. We are your Learning partners 120  Policy Provisions Beneficiary o Designated to receive the proceeds of the policy o Must be identified clearly o Types of Beneficiary: ✓ Primary or Secondary (Contingent) ✓ Revocable or Irrevocable We are your Learning partners 121  Policy Provisions Beneficiary Primary vs. Secondary (Contingent) ✓ PRIMARY- first person in line to receive the death proceeds ✓ SECONDARY (CONTINGENT) - person next in line to receive the proceeds in case of death of the primary beneficiary We are your Learning partners 122  Policy Provisions Beneficiary Revocable vs. Irrevocable ✓ REVOCABLE – changes/amendments to the contract may take effect without consent. Subject to Estate Tax. ✓ IRREVOCABLE - changes/amendments to the contract require written consent. Not subject to Estate Tax. We are your Learning partners 123  Policy Provisions Beneficiary Revocable vs. Irrevocable Minors are not recommended to be named as irrevocable beneficiaries. We are your Learning partners 124  Policy Provisions Settlement o Lump Sum o Interest Option o Fixed Period Option o Fixed Income Option o Life Income Option We are your Learning partners 125  Policy Provisions Settlement Lump Sum o Single sum payment of the proceeds. Interest Option o The company will hold the proceeds to earn interest. o Interest earnings will be paid out regularly. We are your Learning partners 126  Policy Provisions Settlement Fixed Period Option o Pays the beneficiary equal amounts at regular intervals over a specified period of years. Fixed Income Option o Pays the beneficiary a specified amount until proceeds are depleted. We are your Learning partners 127  Policy Provisions Settlement Life Income Option o Pays the beneficiary regular income for his lifetime, no matter how long he lives. We are your Learning partners 128  Policy Provisions When the insured quits paying his premiums.. o Non-Forfeiture Options o Reinstatement We are your Learning partners 129  Policy Provisions Non-Forfeiture Options o Cash Surrender Value (CSV) o Reduced Paid-Up (RPU) o Extended Term Insurance (ETI) o Automatic Premium Loan (APL) We are your Learning partners 130  Policy Provisions Non-Forfeiture Options Cash Surrender Value o Policyowner claims an immediate cash pay-out for his policy. o Once elected, policy is terminated. We are your Learning partners 131  Policy Provisions Cash Surrender Value Protection Period No more protection 30 40 100 Quits paying: ✓ Receive Cash Surrender Value and Accumulated Dividends Maturity Benefit = 0.00 ✓ Policy terminates We are your Learning partners 132  Policy Provisions Non-Forfeiture Options Reduced Paid-Up o Protection continues for life but for a lower face amount. We are your Learning partners 133  Policy Provisions Reduced Paid-Up Protection Period Protection Period FA = REDUCED FA = 1,000,000 30 40 100 Quits paying: ✓ Same Protection Period ✓ Reduced Face Amount Maturity Benefit = REDUCED We are your Learning partners 134  Policy Provisions Non-Forfeiture Options Extended Term Insurance o Protection continues for the same face amount but only until a certain period of years and days. o Automatic non-forfeiture option. We are your Learning partners 135  Policy Provisions Extended Term Insurance Protection Period Protection Period FA = 1,000,000 Until a certain FA = 1,000,000 period of Years and Days 30 40 Reduced Protection Period Quits paying: ✓ Same Face Amount ✓ New Protection Period Maturity Benefit = 0.00 We are your Learning partners 136  Policy Provisions Non-Forfeiture Options Automatic Premium Loan o The company lends to the insured an amount from the cash value to pay for the overdue premiums. o Policy has to have a sufficient amount of cash value. We are your Learning partners 137  Policy Provisions Automatic Premium Loan Cash Vaue if cash value is sufficient, automatic payment will be applied on the premium due it will be considered as policy loan 30 40 41 100 missed the 30-day grace period: SAME protection period Maturity Benefit = less COVERAGE : Face Amount any unpaid dues with less loan (unpaid due) interest We are your Learning partners 138  Policy Provisions Reinstatement o Pure Reinstatement o Redating We are your Learning partners 139  Policy Provisions Reinstatement Pure Reinstatement o Pays back all past due premiums plus interest o proof of insurability is necessary We are your Learning partners 140  Policy Provisions Reinstatement Redating o New premium would be charged o Based on new attained age o New policy effectivity date We are your Learning partners 141  Annuities TRADITIONAL LIFE 142  Annuities Annuities o Purchase of income o Primarily used as an income stream We are your Learning partners 143  Annuities Types of Annuities Fixed o Single Premium Immediate o Single Premium Deferred o Installment Deferred Variable o Conventional Variable o Deferred Variable We are your Learning partners 144  Annuities So how are annuities different from life insurance contracts? We are your Learning partners 145  Annuities LIFE INSURANCE ANNUITY Estate Creation NATURE Estate Distribution Premiums Purchase price mostly in mostly paid in installments PAYMENT lump sum Beneficiary or Annuitant or RECIPIENT Insured Successor Death of the Insured or at While the annuitant PAYMENT OF the Maturity of the Policy is still alive or until a PROCEEDS specified period We are your Learning partners 146  Ethics TRADITIONAL LIFE 147  Ethics Unethical Practices o Twisting o Knocking o Overloading o Rebating o Misrepresentation We are your Learning partners 148  Ethics Unethical Practices Twisting o persuading the person to lapse or surrender a policy in order to purchase a new one. o Also called Replacement We are your Learning partners 149  Ethics Unethical Practices Knocking o Making derogatory remarks about competing policies, advisors or companies. We are your Learning partners 150  Ethics Unethical Practices Overloading o Selling a person insurance more than what is warranted by his resources. We are your Learning partners 151  Ethics Unethical Practices Rebating o Offering part of your commission to your client. o Accepting a smaller premium than the one stipulated in the policy. o Premium discrimination against policyholders. We are your Learning partners 152  Ethics Unethical Practices Misrepresentation o Misstatement of material facts for insurance We are your Learning partners 153  THANK YOU! & GOOD LUCK! We are your Learning partners 154