Due Diligence in Sales

Table of Contents

Chapter 1 Agent Ethics		1
	“Suitable” defined	1
	Adequate Communication Skills	2
	Investment Vehicles	3
	Why is Ethical Conduct Necessary?	3
	Is it possible to teach ethical behavior?	4
	Psychological Egoism	5
	What is the scope of ethics?	7
	What does it take to be a moral person?	8
	Provide quality work & services	9
	Creating a legacy	9
	Example #1	11
	Example #2	11
	Example #3	12
	Example #4	13
	What are our responsibilities to other moral persons?	14
	Required Continuing Education	15
Chapter 2 Client Contact		18
	Insurance Producer Qualifications	19
	Setting Appointments	20
	At the Door	21
	Adequately Explaining Policy Benefits & Limitations	23
	Minimizing misunderstandings	24
	Policy Replacement	26
	Product Misconceptions	27
	When Premiums Seem too High to the Consumer	28
	Client Signatures	29
	Keeping in Touch Following the Sale	29
	Commingling Insurance Funds	31
Chapter 3 Product Selection		32
	Term Versus Cash Value Life Products	32
	Amount of Coverage	33
	What Length of Term Insurance?	33
	Permanent Life Insurance Policies	34
	Annuities	34
	Example	35
	Sales Practices	37
	Product Replacement	38
	Deceptive Sales Practices	38
	Full Disclosure	38
	Product Knowledge	38
	Identifying Suitability Issues	39
	It is Not a Liquidity Issue But Rather a Suitability Issue	40
	A Comprehensive Financial Plan	40
	Example	41
	Laddering investments	41
	Basic Information Requirements	42
Chapter 4 Product Costs		44
	Adverse Selection	45
	Purpose of the Insurance	48
	Risk Categories	48
	Life Insurance Death Proceeds	49
	The Terms “Insurance” and “Assurance”	49
	Term Insurance	49
	Permanent Life Insurance	50
	Whole Life Insurance	50
	Universal Life Insurance	50
	Life Insurance Surrender Charges	52
	Taxation	54
	Viatical Settlements	54
	Annuity Costs	55
	Annual Variable Annuity Costs	55
	Less Risk – Lower Yields	56
	No-Load & Front Load Commissions	56
	Mortality Fees	57
	Investment Advisory Fees	57
	Implicit Interest Rate (i%)	57
	Delaying Annuitization when Interest Rates are Low	59
	Equity Indexed Annuity Costs	59
	Participation Rates	59
	Averaging	60
	Caps	61
	Spreads, Margins and Administrative Fees	61
	Annuity Surrender Values and Penalties	61
	Education Funding	62
	Ethical Responsibility	63
Chapter 5 The Application		64
	Need for Insurance	65
	Completing the Application	66
	Sample Application	67
	Agent’s or Broker’s Report	71
	Temporary Life Insurance Agreement and Receipt	73
	Fair Credit Reporting Act Disclosure Statement	74
	Fair Credit Reporting Act Disclosure Statement Sample	76
	Consumer Rights	77
	Read and Understand Your Policy	79
Chapter 6 Beneficiary Designations		80
	Spendthrift Clauses	83
	Competence Required	84
	Minors as Beneficiaries	84
	Primary Beneficiaries	84
	Community Property States	85
	Secondary/Contingent Beneficiaries	86
	Naming Multiple Beneficiaries	86
	Beneficiary Changes	87
	Divorce	88
	Beneficiary Payout	89
	Updating Beneficiary Designations	90
	Example	91
	Insurable Interest	91
	A Company’s Insurable Interest	92
Chapter 7 The Issued Product		94
	The Insurer, The Insured, Insurance Contract	94
	Underwriting & Rating	95
	Financial Institutions	96
	A Public Interest	96
	Annuities	97
	Joint and Survivorship Annuities	98
	Guaranteed and Life-Time-Certain Annuities	99
	Level Annuities	99
	Capital-Back Guaranteed Annuities	99
	Escalating Annuities	100
	Inflation-Linked Annuities	100
	Enhanced Annuities	100
	Annuity Terminology	100
	Choosing Between Fixed and Variable Annuities	105
	Lifetime versus Term Annuity Payout	105
	Annuitization Options	106
	Financial Strength of the Insurer	108
	Premium Protection	108
	Cost of Living Protection	108
	Principal Protection	108
	Tax Efficiency	109
	Supplementing Other Retirement Income	109
	Reasons to Buy an Annuity	109
	Reasons to Avoid Buying Annuities	110
	Making the Right Annuity Choices	111
	Fixed Rate Annuities	113
	How Fixed Period Annuities Work	113
	Variable Annuities	115
	Funding Variable Annuities	116
	Variable Annuity Fees	116
	Variable Annuity Death Benefits	116
	Surrender Fees	116
	Gains in Variable Annuities are Taxed	117
	Equity-Indexed Annuities	117
	Determining Need for Life Insurance Products	117
	Policy Provisions	119
	The Insurance Contract	119
	Basic Instruments	120
	Policy Ownership	120
	Preventing Money Laundering Activities	121
	Terrorism Produces Insurer Risk	121
	Financial Action Task Force recommendations	122
	Legal Requirements Adopted	122
	Broker-Dealer Requirements	124
	Anti-Money Laundering (AML) Program Requirements	125
	Know Your Consumer (KYC)	128
	Compliance	128
	Suspicious Activity Reports Filing Requirements	129
	A Change in Thinking	129
	A Global Problem	131
	Covered Products	132
	Nine Identified Money Laundering (ML) Methods	134
	Money Laundering Indicators Not Unique to Insurance Products	136
	Policyholder Characteristics and Behaviors	137
	A Known Criminal or Criminal Associate or Relative	139
	Erratic or Abnormal Use of Policies	139
	High Premiums Compared to Verifiable Income	139
	Lack of Concern for Charges or Costs	140
	Undue Interest in Payout Options	140
	Repeated or Unusual Changes in Beneficiary Designations	140
	Insurance on Assets that Appear Inconsistent with Income	141
	Early or Suspicious Claims	141
	Product Characteristics and Maintenance	143
	Customer Due Diligence (CDD)	144
	Policy Features and Provisions	147
	Premiums	147
	Policy Options	147
	Nonforfeiture Options	147
	Dividend Options	148
	Settlement Options	149
	State Required Provisions	150
	Incontestability	151
	Misstatements in the Application	151
	Deferment Clause	152
	Nonforfeiture	152
	Loan Values	152
	Grace Periods and Reinstatement	153
	Allowed Policy Provisions	154
	Suicide	154
	Aviation	154
	War	154
	General Provisions	155
	Deduction of Indebtedness and Premium Refund	155
	Assignment	155
	Beneficiary Designations	155
	Policy Payments	156
	Cash Values	156
	Dividends	156
	Proceeds	157
	Special Clauses	157
	Contract Use	159
	Group Insurance Principles	159
	Eligible Groups	159
	Single Employer Groups	160
	Multiple Employer Trusts (MET)	160
	Unions, Associations and Other Groups	160
	Creditor-Debtor Groups	160
	Group Underwriting Advantages	161
	Keeping Current with Business Needs	162
	The Informed Consumer	163
	Providing a Quote	163
	Key Person Insurance	165
	Buy-and-Sell Agreements	166
	The Key Person Principle	167
	Insurable Interest for Life Insurance	167
	Example	168
	Disability Insurance on Key Employees and Owners	169
	The Small Company’s Exposure	171
	Loss of the Small Business Owner	171
	Planning Ahead for Death or Disability	175
	Private Insurers	175
	Types of Coverage	176
	Property and Liability Insurance	176
	Government Insurance	177
	Voluntary Government Insurance	177
	Compulsory Government Insurance	178
	Mutual Companies	178
	Assessment Mutuals	179
	Non-Assessable Mutuals	181
	Conversions	181
	Reciprocal or Inter-Insurer Associations	182
	Stock and Mutual Underwriting	184
	Factory Mutuals	184
Chapter 8 The Agent’s Role		186
	The Sale is Completed	187
	Policy Delivery	188
	Customer Service Representatives	189
	Types of Insurance Jobs	191
	Claim Denial	192
	Annual Coverage Reviews	194
	Reviewing Disability Coverage	198
	Group Disability Plans	199
	Short Term Disability or Long-Term Disability	199
	Individual Disability Benefits	199
	Reviewing Long-Term Care Insurance	200
	Yearly Client Contact	203

United Insurance Educators, Inc.

8213 – 352^nd Street East

Eatonville, WA  98328

(253) 846-1155

www.uiece.com