Financial Protection with Insurance

 

Table of Contents

Chapter 1: Creating Retirement Protection

1

Covid-19 Creates Difficult Economic Times

1

Inflation Affects Retirement Vehicles

2

Inflation Affects Every Financial Vehicle on Earth

3

Utilizing Insurance Products for Growth

4

Insufficient Planning Haunts Retirees

5

Insurance and Longevity

6

Retiring with Insufficient Retirement Funding

8

Creating Income During Retirement

10

  Rising COVID Medical Costs & the Effects on Insurance

11

  COVID-19 Appears in 2020 Creating Additional Costs

11

  High Medical Costs in Normal Times

13

Long-Term Care Insurance Policies

18

Selecting the Appropriate Insurance Policy

20

Preserving Retirement Plans

21

Debt Can Affect the Purchase of Insurance

23

Debt Affects Insurance Rates

25

Saving for the Future

26

An Aging Nation Impacts Insurance & Governments

29

Buying the Right Insurance Products

33

Compounding Power is Important

35

Retirement Income

35

Social Security Benefits/Age of Collection

36

Supplementing Income with Annuities & Personal Savings

37

Women Live Poorer in Retirement than Men

37

Primary Insurance Amount (PIA)

39

  PIA Definition

39

  PIA Formula Bend Points

39

  Benefit Based on PIA and Age

39

  Average Indexed Monthly Earnings

39

Summary

40

  Monthly Benefit Amounts

40

Old Computing Methods

41

  Average Indexed Monthly Earnings

41

  Indexing Yearly Income

41

  Computation

41

Supplementing Employer Pension Benefits

42

Tax Deferred Retirement Benefits

43

Individual Savings

43

Managing Income in Retirement

44

Pre-Retirement Income

44

Retirement Shortfalls

45

Getting a Return on Savings

47

Receiving Income from Investment Vehicles

49

Taxation on IRA’s, Annuities and More

49

Withdrawals Prior to Age 59 ½

50

  The Age 55 Penalty Exception

50

  The Five-Year Rule for 72(t) Payments

51

 

 

Chapter 2: Why does the SECURE Act Apply to Insurance Producers?

52

SECURE Act of 2019

54

Public Law 116-124

54

H.R. 1994 AN ACT

56

  SEC 1 Short Title, Etc.

56

Title I: Expanding Retirement Savings

57

  SEC 101 Multiple Employer Plans

57

  SEC 102 Increase In 10% Cap

65

  SEC 103 Rules Relating to Election

65

  SEC 104 Increase in Credit Limitation

67

  SEC 105 Small Employer Auto Enroll Credit

67

  SEC 45T Auto-Enroll Option

67

  SEC 106 Taxable Non-Tuition Fellowship

68

  SEC 107 Repeal of Maximum Age for IRA

68

  SEC 108 Qualified Employer Plans                                                             

69

  SEC 109 Portability of Lifetime Income Options

69

  SEC 110 Treatment of Custodial Accounts

72

  SEC 111 Clarification of Retirement Income

73

  SEC 112 Qualified Cash or Deferred

73

  SEC 113 Penalty-Free Withdrawals

75

  SEC 114 Increase in Age for Distributions

77

    Editor’s Note

77

  SEC 115 Special Rules for Minimum Funding Standards

78

  SEC 116 Treating Excluded Difficulty of Care Payment

82

Title II: Administrative Improvements

84

  SEC 201 Filing Due Date for Year

84

  SEC 202 Combined Annual Report

84

  SEC 203 Disclosure Regarding Lifetime Income

85

  SEC 204 Fiduciary Safe Harbor

87

  SEC 205 Modification of Rules

90

  SEC 206 Modification of PBGC Premiums

97

Title III: Other Benefits

98

   SEC 301 Benefits for some 1st Responders

98

   SEC 302 Expansion of Section 529 Plans

98

Title IV: Revenue Provisions

99

   SEC 401 Modification of Distribution Rules

99

   SEC 402 Increase in Penalty for Failure to File

103

   SEC 403 Increase in Penalties for Failure to File Retirement Plan Returns

103

   SEC 404 Increase Information Sharing

104

Title V: Tax Relief for Certain Children

105

   SEC 501 Modification of Rules

105

      Editor’s Note

105

 

 

Chapter 3: Life Insurance

107

Policy Provisions

108

Defining the Contract

108

Policy Application

109

Policy Ownership

110

Preventing Money Laundering Activities

110

Terrorism Produces Insurer Risk

110

    Financial Action Task Force (FATF)

111

Legal Requirements Adopted

112

    The USA Patriot Act

112

Broker-Dealer Requirements

114

AML Program Requirements

115

Know Your Customer (KYC)

118

Compliance

118

Suspicious Activity Reports Filing Requirements

118

A Change in Thinking

119

A Global Problem

120

Covered Products

122

Nine Identified Money Laundering (ML) Methods

123

 1. Single Premium Life Insurance Contracts

123

 2. Early Policy Redemption

124

 3. Claim Fraud

124

 4. Cash Premium Payments

124

 5. “Free Look” Periods

124

    Example

125

 6. Collusion

125

 7. Third-Party Premium Payments

125

 8. Risks Involved in International Transactions

125

 9. Fraudulent Customers

126

Money Laundering Indicators Not Unique to Insurance Products

126

   1. Large One-Off Cash Transactions

126

   2. Use of False Addresses

126

   3. Overseas Business from Higher Risk Area

127

  Policyholder Characteristics and Behaviors

127

  A Known Criminal or Criminal Associate or Relative

129

  Erratic or Abnormal Use of Policies

129

  High Premiums Compared to Verifiable Income

129

  Lack of Concern for Charges or Costs

130

  Undue Interest in Payout Options

130

  Change of Beneficiary

130

  Insurance on Assets Inconsistent with Income

130

  Early of Suspicions Claims

131

Product Characteristics and Maintenance

132

   1. Policy Payments from Third Parties

133

   2. Multiple Sources of Funds to Pay Premiums

133

   3. Significant Premium Top-Ups to a Policy

133

   4. Overpayment of Premium

133

   5. Using an Insurer like a Bank

133

   6. Early Redemption

134

   7. Unusually High Commission Charges

134

Customer Due Diligence (CDD)

134

Policy Features and Provisions

136

Premiums

137

Policy Options

137

  Nonforfeiture Options

137

  Dividend Options

138

  Settlement Options

138

State Required Provisions

140

  Incontestability

141

  Misstatements in the Application

141

  Deferment Clause

142

  Nonforfeiture

142

  Loan Values

142

  Grace Periods and Reinstatement

143

Allowed Policy Provisions

144

   Suicide

144

   Aviation

144

   War

144

General Provisions

145

   Deduction of Indebtedness

145

   Change of Beneficiary

145

   Assignment

146

Beneficiary Designation

146

Policy Payments

148

  Cash Values

148

  Dividends

149

  Proceeds

149

  Special Clauses

150

Contract Use

152

Group Insurance Principles

152

Eligible Groups

152

   Single-Employer Groups

152

   Multiple Employer Trusts (METS)

152

   Unions, Association, and Other Groups

153

 Creditor-Debtor Groups

153

 Underwriting Advantages

154

 Keeping Current with Business Needs

155

The Informed Consumer

156

Providing a Quote

156

The Contract Participants

158

  The Insurer

158

  The Insured

158

  Insurance Contract

159

  Underwriting and Rating

159

  Finance

160

A Public Interest

160

Key Person Insurance

161

Buy-and-Sell Agreements

162

The Key Person Principle

163

  Insurable Interest for Life Insurance

163

    Example

164

  Disability Insurance on Key Employees

165

    Example

165

The Small Company’s Exposure

167

  Loss of the Small Business Owner

167

Planning Ahead for Death or Disability

171

Insuring Entities

171

Private and Government Insurance

171

Private Insurers

171

  Life Insurance

172

  Property and Liability Insurance

173

Government Insurance

173

  Voluntary Government Insurance

173

  Compulsory Government Insurance

174

Mutual Companies

174

  Assessment Mutuals

175

  Non-assessable Mutuals

177

  Conversions

177

Reciprocal or Inter-Insurer Associations

178

Stock and Mutual Underwriting

179

Factory Mutuals

180

Superior Agents and Brokers

181

 

 

Chapter 4: Annuities

184

Annuity Choices

184

  Joint and Survivorship Annuities

184

  Guaranteed and Life-time-certain

185

  Level Annuities

185

  Capital-Back Guaranteed Annuities

185

  Escalating Annuities

186

  Inflation-Linked Annuities

186

  Enhanced Annuities

186

Annuity History

187

Agents Must Understand Terminology

190

Annuity Basics

194

  Choosing Between Fixed and Variable

195

  Choosing Between a Lifetime and Term

196

  Company Financial Strength

198

Annuity Extras

198

  Principal Protection

198

  Cost of Living Protection

198

The Ups and Downs of Annuities

199

    Principle Protection

199

  Tax Efficiency

199

Supplementing Other Retirement Income

200

  Reasons to Buy an Annuity

200

  Reasons to Avoid Buying Annuities

200

Making the Right Annuity Choices

201

Many Annuity Choices

202

Annuities for Retirement

204

Everyone is Living Longer These Days

204

Putting Off Retirement

205

Fixed-Rate Annuities

207

  How Fixed Rate Annuities Work

207

Variable Annuities

209

  Annual Expenses

210

  Funding Variable Annuities

210

  Variable Annuity Fees

211

  Variable Annuity Death Benefit

211

  Surrender Fees

211

  Early Withdrawal Penalty

211

  Taxation

211

Equity-Indexed Annuities

212

COVID-19 and Annuities

212

The Future Outlook

213

  Insurer Investments were Affected

214

Insurance Producers May Struggle

215

Assessing COVID-19 Impact

216

Financial and Practical Impact on Insurers

217

  Short and Long-Term Insurance Impacts

218

The Life Insurance Industry in America and Around the World

219

  Underwriting During the Aids Crisis May be Similar

219

  Non-Health Elements Affecting Policy Underwriting

219

  Underwriting Life Insurance Products in these COVID-19 Times

219

Applications for Annuity and Life Insurance Policies

221

Policy Provisions Now Apply to COVID-19

223

Suitability in Annuity Transactions Model Regulation

224

Section 1. Purpose

226

Section 2. Scope

227

Section 3. Authority

227

Section 4. Exemptions

227

Section 5. Definitions

228

Section 6. Duties of Insurers and Producers

230

Best Interest Obligations

230

Disclosure Obligations

232

Conflict of Interest Obligation

233

Documentation Obligation

233

Application of the Best Interest Obligation

234

When Annuity Transactions are Not Based on a Producer’s Recommendation

234

Supervision System

235

Prohibited Practices

237

Safe Harbor

237

Section 7. Producer Training

238

Section 8. Compliance Mitigation; Penalties; Enforcement

239

Section 9. Recordkeeping

240

NAIC Model Law Appendix A

240

NAIC Model Law Appendix B

242

NAIC Model Law Appendix C

243

 

 

Chapter 5: Health Insurance

244

Adverse Selection in Insurance

244

The Potential Future of the Affordable Care Act

247

Without Insurance Health Care is Expensive in the U.S.

248

Short–Term or Temporary Health Insurance

252

Health Insurance Plans Offer Variety

254

Manage Care Plans

254

Health Maintenance Organizations (HMOs)

255

Point-of-Service Plans (POS)

255

Preferred Provider Organizations (PPO)

256

Catastrophic Coverage

256

Health Savings Accounts (HAS)

257

Hospital Indemnity Policies

257

Critical Illness Insurance

258

Cancer Insurance

259

Accidental Death and Dismemberment Policies

259

Identity Theft Insurance

260

Long-Term Care Nursing Home Policies

261

Defining Long-Term Care

263

Partnership for Long-Term Care Begins

265

Partnership Policies Created

267

Medicaid is the Largest Nursing Home Payor

267

DRA of 2005 Provides Asset Protection

268

Agent and Consumer Education

269

Policy Benefits

269

Inflation Protection

269

Program Benefits

270

Making Benefit Choices

270

Daily Benefit Options

272

Determining Benefit Length

273

Policy Structure

273

Home Care Options

273

Simple and Compound Protection

274

Required Rejection Form

274

Elimination Periods in LTC Policies

274

Policy Type

275

Restoration of Policy Benefits

275

Preexisting Periods in Policies

275

Deciding Between Policy Types

276

Nonforfeiture Values

277

Waiver of Premium

277

Unintentional Lapse of Policy

278

Policy Renewal Features

278

Items Not Covered by the LTC Policy

279

Extension of Benefits

279

Affordability Contracts

279

Standardized Definitions

280

Minimum Partnership Requirements

280

Benefit Duplication

280

Partnership Publication

280

Truly a Partnership

281

Saving Assets from Medicaid Qualification

282

Accessing Policy Benefits

283

Asset Repositioning

285

Partnership Participation Does Not Guarantee Medicaid Qualification

286

Policy Considerations for Non-Partnership Traditional LTC Policies

286

Underwriting for Policy Issue

287

NAIC Model Regulations

288

Partnership Plans Protect Assets, Not Income

289

Application Age Affects Cost

289

Reducing Benefits to Save Premium

290

    Example

291

Policy Renewal

291

Policy Review: 30-Day “Free Look”

291

“Notice to Buyer”

292

Policy Schedule

292

Policy Terminology

293

Elimination Periods in Policies

297

Policy Termination

297

Mental Impairments of Organic Origin

297

Hospitalization Requirements

298

Home and Community-Based Benefits

298

Bed Reservation Benefit

299

Waiver of Premium

299

Selecting Other Types of Care

300

No Policy Covers Everything

300

Age Misstatement

301

  Third-Party Notification

302

Reinstatement of a Lapsed Policy

302

Section 6021: Expansion of State LTC Partnership Program

303

NAIC 2000 Model Act

305

  “Level Premium” Does Not Mean Unchanging Rates

306

  Financial Requirements for Rate Increases

307

Rate Certification from the Insurer’s actuary

307

Consumer Disclosure

307

LTC Personal Worksheet

307

Determining Policy Suitability

308

Consumer Publications

308

Post Claim Underwriting

309

Tax-Qualified Policy Statement

309

Replacement Notices

310

Policy Conversion

310

An Overview

310

The Model Act Applies to All

311

  Policy Renewable Provisions

312

  Payment Standards Must be Defined

312

  Preexisting Standards

312

  Policy Type Must Be Identified

312

  Activities of Daily Living (ADL)

312

  Life Insurance Policies with Accelerated Benefits

313

  Nonforfeiture Provisions

313

  Extension of Benefits

313

  Home Health & Community Care

314

  Additional Provisions for Group Policies

314

  Outline of Coverage

314

  Policy Delivery

314

  No Field Issued LTC Policies

314

  Policy Advertising and Marketing

315

  Prominent Statement Required Regarding Claims Not Covered

315

  Prior to the Sale

315

  Twisting and High-Pressure Tactics: Simply Illegal

316

  Association Marketing

316

Following the Sale

316

Failure to Pay Premiums

317

In Conclusion

317

A Few Unusual Policies

318

  Riot Insurance

318

  Fantasy Football Insurance

318

  Athlete Loss-of-Value Insurance

318

  Hole-in-One Price Insurance

318

  Body-Part Insurance

319

  Paranormal Insurance

319

  Death-by-Laughter Insurance

319

  Change-of-Heart Insurance

319

  Lottery Insurance

319

  Kidnapping & Ransom Insurance

320

  Key Person or Essential Employee Insurance

320

  Multiple-Birth Insurance

320

  Bicycle Insurance

320

  Surety Bond & Insurance

320

 

 

Chapter 6: Insurance Ethics

322

What Ethical Agents Know

322

Insurance Perceptions

322

Establishing Ethical Goals

324

    Example

327

Why be Ethical?

328

Following the Law

328

Ethics in the Workplace

329

Ethics Are the Same Regardless of the Name Used

330

Understanding How the Past Affects the Future

332

Companies Set Ethical Guidelines

337

    Examples

341

Promoting Ethical Behavior

341

An Ethical Theory: Egoism

344

   Is It Possible to Teach Ethical Behavior to Other People?

345

   What is The Scope of Ethics?

345

   What Does it Take to be A Moral Person?

347

   What Quality of Work Does the Individual Want to Perform?

348

   What is The Legacy Desired?

348

   Who Determines Ethics?

349

      Example #1

350

      Example #2

351

   What Are An Individual’s Responsibilities to Other Moral People?

351

The Theory of Objectivist Ethics

354

Holding an Ethical Code

355

    Example

356

   Sympathy/Empathy

362

Looking Professional

363

Courtesy

363

Mores

364

Measuring the Ethical Values of Others

368

General Education and State Mandated CE

369

Getting Education in a Timely Manner

371

Laying Out Policy Benefits and Limitations

373

Policy Replacement

376

When the Agent Allows Misconceptions

377

When the Premiums Seem too High to the Client

379

Obtaining Proper Application Signatures

379

Keeping in Touch After the Sale

380

Selling the “Fast Buck” Items

380

Commingling Funds

381

Professional Investment Advisors

382

Preparing for Tomorrow

383

Fixed and Variable Income

383

Financial Management

383

Due Diligence

385

Due Diligence Technical Versus Common-Sense Approach

388

Telling the Truth Requires Responsibility and Accountability

394

Public Images

401

Selecting Insurers to Represent

402

Does Legal Also Mean Ethical?

402

Last Page

405

 

 

 

United Insurance Educators, Inc.

8213 – 352nd Street East

Eatonville, WA 98328