Insurance for Everyday Life

Table of Contents

 

Chapter 1 – Ethics

1

The Importance of Ethics

1

  Fiduciary

2

  Example

3

Insurance Includes Financial Goals & Financial Decisions

4

Informed Insurance Choices Based on Sound Financial Information

5

Part-Time Insurance Producers

6

Competency

7

  Example

7

Education

9

  Common feedback

9-11

  Example

11

Writing the Policy

12

  Example

12

Health Questions

13

Proper Terminology

14

Commingling Funds

15

  Example

15

When the Prospect Stick with “No”

17

Why is it Important to be an Ethical Insurance Producer?

18

Equal Application of Ethical Behavior

19

Making Choices

19

Jobs Replaced by Technology

20

Ethics Beyond Philosophers

21

  Unfair discrimination & Disparate impact

22

Discrimination Under State Insurance Laws

23

Being Ethically Responsible Benefits Consumers

24

Thinking of Others

25

Social Media & its Effect on Insurance

26

Public Perception

28

It is Easier to Pass Laws than Enforce Ethics

30

Mores

31

Is it Apple to Apples or Apples to Oranges?

33

Recommending Lapsing Policies Rather than Formally Replacing Them

34

  Example

34

  Example

35

  Example

36

Can Ethics or Morality Actually be Regulated?

37

Liability, E&O Insurance & Financial Planning Insurance Activities

39

  Conflict of Interest

40

  Negligence

41

In Conclusion

43

 

 

Chapter 2 – Insurance Risk: Floods, Tornados, Earthquakes, Disability, Death, & Ill Health

45

Life’s a Gamble

45

Defining Risk

45

Comfort Level Regarding Uninsured Loss

46

Insurance Can Protect Against Living Too Long

47

Insurance Risks, Perils & Hazards

48

Insurable Exposures

49

Chance of Loss

49

Morale & Moral Hazards

49

Law of Large Numbers

50

Types of Risk

50

  Pure & Speculative Risk

51

Investment Risk

52

 

 

Chapter 3 – Protection Through Insurance

53

Of course, We Sell of Peace of Mind

53

Statistics

53

Insure the Big Things

54

You Get What You Pay For

55

Big Deductibles Are Usually Good

56

Medical Insurance

56

Medicaid Beneficiaries

58

Change is Inevitable

58

 

 

Chapter 4 – Life Insurance

60

Creating an Estate with the Help of Life Insurance

60

Trading Premiums for Family Security & Future Protection

61

Two Basic Insurance Terms: Premium & Peril

62

Hoping Good Luck Wins, but Hedging the Best with Insurance

62

Nearly all Good Financial Plans Involve Life Insurance

63

What’s the Insurance For?

64

Beneficiary Payout Options

65

Estate Planning Should Incorporate Procedures, Not Necessarily Products

65

Providing for Others through Insurance & Appropriate Planning

66

Using Financial Discipline & Insurance to Achieve Security

66

Clarifying Client Goals Prior to Recommending Insurance Products

67

Basic Goals of Life Insurance

68

Life Insurance Can be Used for More than Just Death Benefits

69

Trust Beneficiaries

69

Types of Life Insurance

70

An Estate Planning Tool

71

Term Insurance: No Cash Values, Just Coverage

71

Whole Life Insurance: The Granddaddy

72

Endowment Insurance Policies: Forced Savings

72

Universal Life: Separating Expenses

73

Variable Life Insurance Policies have Few Guarantees

73

Survivorship Life Insures Two or More People

75

Single Premium Whole Life

75

Buy-Sell Agreements

76

Anti-Money Laundering

77

Anti-Money Laundering Program & Suspicious Activity Reporting Requirements for Insurance Companies

77

1. Why is the Financial Crimes Enforcement Network issuing a regulation requiring insurance companies to establish anti-money laundering program?

77

2. Does the final rule apply to all insurance companies

78

3. What are “covered products”?

78

4. Which insurance products are not “covered products” pursuant to the rule?

79

5. Does the final rule require insurance agents and brokers to establish anti-money laundering program?

79

6. What are the requirements for an anti-money laundering program?

80

  A compliance officer who is responsible for ensuring that the program is implemented effectively.

81

  Policies, procedures and internal control.

81

  Ongoing training of appropriate persons concerning their responsibilities under the program.

81

  Independent testing to monitor and maintain an adequate program.

82

7. Is an insurance company required to train all of its employees in-house? What about the training of brokers and agents?

82

8. What resources are available to help an insurance company to establish an adequate program?

82

9. When must we implement our Anti-Money Laundering Program?

83

10. Should insurance companies continue to file Form 8300 – Report of Cash Payments Over $10,000 Received in a trade or Business?

83

11. Are insurance companies required to file Suspicious Activity Reports as a part of their anti-money laundering programs?

83

12. What are examples of suspicious activities with regard to insurance products?

84

13. How should suspicious activity involving variable insurance products funded by separate accounts that meet the definition of a “mutual fund” be reported?

84

14. Are insurance brokers and agents required to file suspicious activity reports?

84

15. Are joint Suspicious Activity Report filings permissible?

85

16. If an insurance company files a Suspicious Activity Report voluntarily, will it be protected from civil liability?

86

17. May we disclose that a Suspicious Activity Report was filed? What if we receive a civil subpoena?

86

18. Certain financial institutions participate in information sharing pursuant to section 314(b) of the USA PATRIOT Act and Financial Crimes Enforcement Network regulations at 31 CFR 103.110. May insurance companies now participate in that information sharing?

87

Insurance Company Ratings Matter

87

  Admitted Assets

88

  Consolidated Assets

88

  Investment Grade Issues

88

  Owner’s Equity

88

  Contingency Reserves

89

  Unassigned or Permanent Surplus

89

  Common Stock

89

  Additional Paid-Up Capital

89

  Mandatory Securities Valuation Reserve

89

  Capital Ratio

89

  Net Premium Income

90

  Surplus Reinsurance

90

    Due Diligence

91

 

 

Chapter 5 – Disability Insurance

93

The Unrecognized Danger: Disability

93

Avoiding Excess Insurance Coverage

94

Approaching the Disability Subject

94

Income Loss Affects the Pocketbook

95

Self-Employed Need to Protect Themselves

96

  Major Life Activities Disruption from Disabilities

97

  Longevity Affects Life Insurance Company Projections

98

Protecting Business Partners from Each Other’s Disability with Insurance

101

Qualifying for Business Disability Buyout Insurance

102

Selling Disability Policies Requires Specialized Knowledge

103

Disability is Often Under-Insured

103

Policy Waiting Periods

103

Durational Periods in Policies

104

“Disability” in Policy Definitions are Extremely Important

104

Group Disability Policies

105

Physical Examinations for Underwriting Policies in COVID19 Times

105

Renewability

106

Policy Underwriting

106

 

 

Chapter 6 – Long Term Care Insurance

107

Nursing Home Protection

107

Long-Term Care Policy Defined

108

Tax-Qualified Plans

110

Medical Necessity & Cognitive Impairment

111

Activities of Daily Living (ADL)

111

  Non-qualified Plans – 7 ADLs

112

  Tax-qualified Plans – 6 ADLs

112

Benefit Triggers

113

IRS Notice 97-31

114

State Law versus Federal Law

115

Covered Benefits for the Chronically Ill

116

Partnerships Long-Term Care Contracts

117

Making Benefit Choices

119

  Several buying decisions

120

Daily Benefit Options

121

Expense-Incurred and Indemnity Methods of Payment

122

Determining Benefit Length

122

Asset Protection in Partnership Policies

123

Policy Structure

123

Home Care Options

124

Inflation Protection

124

Simple & Compound Interest

125

Elimination Periods in LTC Policies

125

Policy Type

126

Preexisting Periods in Policies

126

Prior Hospitalization Requirements for Medicare’s Skilled Care

127

Nonforfeiture Values

128

Waiver of Premium in Insurance Policies

128

Unintentional Lapse of Policy

129

Policy Renewal Features

129

LTC Policies Must be Affordable for Many Years

130

Minimum Partnership Requirements

130

Benefit Duplication

131

Partnership Publication

131

Adequate Policy Benefits

131

Look-Back Periods

133

Application

134

Market Needs

135

  Part A (In-Patient Care)

135

  Part B (Medicare Care)

136

  Under Either Part A or Part B

137

  Part D Prescription Drug Benefits

137

Medicaid is a Grant Program

137

Policy Pricing

138

  Example

139

Notice to Buyer

139

Policy Schedule

140

Home Care & Community-Based Care

140

Bed Reservation

141

Waiver of Premium

141

Alternative Plan of Care

142

Policy Exclusions

142

Age Misstatements on the Application

143

Third-Party Notification of Premium Nonpayment

144

When Premiums Are Not Paid on Time

144

 

 

Chapter 7 - Annuity Best Interest Training Course

146

Changing Times

146

Investment Objectives

148

Annuities are One of the Oldest Known Investments

149

The Reinsurance Network

150

Common Annuity Objectives

150

  Retirement Funding

150

  Wealth Accumulation

150

  Payout Options such as Lifetime Income

150

  Delay of Taxation

151

Determining the Right Products

151

  Annuity Product Differences

152

Annuities are used for Several Financial Objectives

152

  Safety of Investment in Fixed Rate Annuities

152

  Tax-Deferred Annuity Accumulation

153

  Funding Retirement with an Annuity Income Stream

153

  Structured Settlements

153

  Probate Avoidance

154

Old Money; New Money

154

Annuity Participants

154

  The Insurer

154

  The Contract Owner

155

  The Annuitant

155

  The Beneficiary

156

Types of Annuities

156

  Maturity Dates

157

Annuity Income Options: Take Income Now or Later

157

  Immediate Annuities

157

  Example

157

  Deferred Annuities

158

  Split Annuities

158

Premium Payment Methods

158

  Single Premium Annuities

158

  Flexible Premium Annuities

158

Annuity Type Based on Policyowner Risk

159

  Variable Annuities

159

  Fixed Annuities

160

  Declared Rate Fixed Annuities

160

  Fixed Equity Indexed Annuities (EIA)

161

  Two-Tiered Annuities

161

A Closer Look at Fixed Rate Annuities

162

  Annuitization

164

Why Annuitize?

165

A Closer Look at Fixed Equity Indexed Annuities

167

  Accumulation & Distribution Phase

167

A Closer Look at Variable Annuities

169

Variable Annuity Annual Expenses

170

Funding Variable Annuities

171

  Variable Annuity Death Benefit

171

Contract Provisions Affect Consumers

171

Annuity Surrender Values & Penalties

172

Guaranteed Rates of Return

174

  Interest Crediting Methods

175

  Important Consideration

176

  Simple versus Compound Interest

176

Equity Index Annuity Crediting

177

  Equity Participation Rates

178

  EIA Averaging

179

  EIA Caps

179

EIA Spreads, Margins & Administrative Fees

179

Withdrawing Annuity Funds

180

Annuity Benefit Payout Options

180

  Example

181

  Nonhuman Payees Under a Settlement Option

182

  Lifetime Income Payout Option

182

  Life Annuity, Period Certain Payout Option

183

  Joint-and-Last-Survivor Payout Option

183

  Required Distribution

184

Taxation

184

  Exclusion Ratio

185

  Qualified and Non-qualified Annuity Annuitization

185

NAIC Model Law Section 4. Exemptions

186

  ERISA and Tax-Favored Retirement Plans

186

  Using Annuities in Tax-Favored Retirement Plans

187

  IRS Requirements for Annuity Funding

188

  Taxation of Qualified Annuity Distributions

188

Financial Sound Insurers

189

The Insurance Company or Companies Utilized

190

  Insurance Producers Can Only Sell Products Allowed

190

  Full Client Disclosure on Insurers

191

Best Interest Standards

191

NAIC Model Law Section 6. Duties of Insurers and Producers

191

Determining the Best Interest of the Consumer

193

NAIC Model Law Section 5. Definitions

193

Asking the Right Questions to Develop a Consumer Profile

194

  When a Recommendations is Not Possible Due to Lake of Information

195

NAIC Model Law Appendix B

196

  Ramifications of Refusing to Provide Personal Information

196

  Sales Practices

197

NAIC Model Law Section 6. Duties of Insurers and Producers (4)

197

NAIC Model Law Appendix C

198

  Deceptive Sales Practices Forbidden

199

NAIC Model Law Section 6. Duties of Insurers and Producers (D)

199

NAIC Model Law Section 6. Duties of Insurers and Producers (3)

200

  Recordkeeping

200

NAIC Model Law Section 9. Recordkeeping

200

NAIC Model Law Section 6. Duties of Insurers and Producers (2)

201

  Identifying Best-Interest Issues

202

Emergency Situations Not Foreseen by the Consumer

203

It is Not a Liquidity Issue but Rather a Best Interest Issue

204

The Care Obligation

205

  The Application

205

  Placing the Consumer’s Needs Before the Producer’s Needs

205

  Product Exchanges & Replacements

205

  Product Replacement with Best Interest in Mind

206

  Exchanges or Replacements Within the Preceding 60 Months

206

NAIC Model Law Section 6. Duties of Insurers and Producers (j)

206

  Annuity Replacement in General

207

  The Annuitant’s Death

208

Annuity Tax-Deferred Status & Other Taxation Issues

208

Tax-Deferral Exception

209

1035 Exchanges

210

Annuity Gifts

210

Other Tax Issues

210

Annuities Are (Sometimes) Protected Assets

210

Mortality Tables

211

Insurance Producer Compensation Disclosure Forms

212

NAIC Model Law Appendix A

213

Sometimes Recommendations are Not Possible

215

NAIC Model Law Section 6. Duties of Insurers and Producers (B)

216

Basic Insurer Information Requirements

216

NAIC Model Law Section 6. Duties of Insurers and Producers (C)

217

Definitions for Annuity Products under Model Law

219

NAIC Model Law Section 5. Definitions

219

 

 

Chapter 8 – Earthquake Insurance

222

Legal Definition of Earthquake

222

Naturally Occurring Earthquakes: Fault Types

224

Few Insurers Offer Earthquake Policies

228

Factors Affecting the Buying Decision

228

Earthquake Insurance

230

  Damage Ratio (DR)

230

Who Should Purchase Earthquake Coverage?

232

Buying Policies is a Personal Choice

232

  The First Reason People Should Buy Earthquake Insurance

232

  The Second Reason People Should Buy Earthquake Insurance

232

  The Third Reason People Should Buy Earthquake Insurance

232

Exclusions or Limitations in Earthquake Policies

233

  Fire, Land, Vehicles, Pre-Existing Damage

233

  External Water Damage

234

  Masonry and Brick Veneer

234

Determining Insurance Amounts

234

Policy Deductibles

235

  Example

236

Policy Cost

237

Coverage Nationally

239

  Risk Perception

240

 

 

Chapter 9 – Auto Insurance

241

The Insurance Contract

241

Underwriting Auto Risk

242

  Sustainable insurance

243

Auto Insurance

244

Six Policy Components

245

Rising Premium Rates

246

Insuring a New Vehicle

247

Classic Cars

248

Delivery Drivers

249

RV Insurance

249

Motorcycle Insurance

250

Mechanical Breakdown Insurance (MBI)

251

Foreign Travel

252

Pay-As-You-Go Policies

253

Safe Drivers Pay Less for Insurance

254

A New Issue: Legalized Marijuana

256

Distracted Driving

259

Oh Lord, Protect Us from Teen Drivers

261

  Accidents are caused by

262

Affordable Coverage

264

  Risks are stated in one of three ways

266

  Same format

267

  Four Types of Hazards

268

  No-fault coverage

269

Policy Components: Three Standard Parts

270

Conditions in an Auto Policy

271

Family Automobile Policy

273

Auto Liability Insurance

274

  Several ways to judge the amount of coverage needed

275

Property Damage Liability Insurance

276

Medical Auto Insurance

276

Personal Injury Protection (PIP)

277

Collision Insurance

277

Comprehensive Coverage

278

Auto Insurance for School-Sanctioned Events

278

Uninsured & Under-Insured Motorists Coverage

279

Driving Uninsured: No-Pay-No-Play Laws

279

Towing & Service or Rental Car Reimbursement

280

Wage Loss & Substitute Services Coverage

281

Determining Auto Insurance Rates

281

  Several factors determine risk

281-282

When an Auto Accident Occurs

283

No-Fault Insurance

283

Policy Deductibles

285

Broad Form Auto Insurance: Insuring Just the Driver

286

Insuring Above All Other Liability Policies

287

Reviewing Issued Policies for Correctness

288

Policy Layout

288

Negligence Laws

288

Three Types of Negligence

289

Loss-Adjustment Provisions

289

Notice of Loss

290

Processing an Automobile Claim

290

 

 

Chapter 10 – Protecting Our Homes

294

Homes are Sometimes the Major Asset

294

Renter’s Insurance

294

Homeowner’s Insurance

295

Two Sections

295

Property Exposures

296

Liability Exposures

296

Updating Coverage

297

  Market & Replacement Value

297

As a Recap

298

80 Percent Coverage Required

298

Fire & Allied Coverages

299

Three Forms of Homeowner’s Coverage

300

Section I of Form #1 (HO-1)

300

Section II of Form #1

302

Form #2 (HO-2)

302

Form #3 (HO-3)

302

Policy Conditions

303

Rates for Fire Insurance

304

Insurable Conditions

304

Form #4 (HO-4) Renter’s Insurance

305

Form #5 (HO-5)

305

Form #6 (HO-6)

306

Form #8 (HO-8)

306

Exceptions in the Homeowner’s Policy

307

Exceptions in Liability Coverage

308

Natural Disasters

308

Moratorium on Insurance

310

Volcanoes

311

Hurricanes & Tornadoes

311

Personal Property

312

Insuring What Needs Insured; Inventories

313

 

 

Chapter 11 – The Unusual

315

Just About Anything can be Insured

315

Unusual Types of Issued Policies

316

  Civilian Space Tourism

316

  Asteroid/Meteor Insurance

317

  Body Parts Insurance

318

  Chancel Liability Insurance

319

  Immaculate Conception Insurance

319

  Alien Abduction Insurance

319

  Spook safe Insurance for Ghosts, Poltergeists & Abnormal Phenomena

319

  Love (Romance) Insurance

319

  Multiple Births Insurance

320

  Sports Fan Insurance & Fantasy Football Insurance

320

  Taco Insurance

321

  Horse Reproductive Organ Insurance

321

  Pet Insurance

321

  Ransom Insurance

323

  Sensory Insurance

324

  Talent Insurance

324

  Touring Caravan Insurance

325

  Wedding Insurance

325

  Replacement Insurance

328

  Other Oddities

328

Unusual Insurance Claims

328

Motor Insurance Quotes from Claim Forms

329

 

 

 

 

United Insurance Educators, Inc.

 

Phone: (253) 846-1155

Email: mail@uiece.com